Raghuram Rajan has a word of caution on MSME lending

Former Governor of Reserve Bank of India (RBI), Raghuram Rajan has opened the pole of the entire banking system of India. In his note to the Parliamentary Committee, Rajan has mentioned that the NPA’s fault is always blamed on the RBI. Bankers, promoters and sometimes government officials also turn over to the issue of NPA and the regulator is responsible for NPA’s. However, the reality is not that. Raghuram Rajan has highlighted this fact in the note submitted to Parliamentary Committee Chairman Murli Manohar Joshi. He has told that who is the real responsibility of NPA.

Who is responsible for the NPA?

Raghuram Rajan wrote that bankers, promoters and adverse conditions are responsible for NPA’s rightful way. Regulators are never in the form of options of banks. RBI can not ever interfere in matters of business decisions and solving of banks especially. However, in most cases the regulator can issue a warning only and can ask them to take action against bad loans.

According to Raghuram Rajan, the RBI works as a referee in business matters, not as a player. The board of banks does not have any business experience of the nominee on his behalf. His job is to see that the procedure is followed properly.

What does RBI do in case of NPA?

According to Raghuram Rajan’s note, the most important responsibility of the regulator, that is RBI, is to identify and inform about the NPA. Apart from this, it is also the job of RBI to ensure how much capital the banks want. However, RBI monitors the banks regularly for this.

Banks did not take steps

Raghuram Rajan said that the banks did not take action on the right time even after getting information about the trapped loans. However, he did not know why the banks did this. Rajan said, “In fact, banks have repeatedly issued loans to promoters without investigation. Loans have been issued based on project reports. This is the reason why the debt was never paid attention.

The highest NPA between 2006-2008

Raghuram Rajan says that for the increase in NPAs of banks, the scam in the former UPA government is also a big reason. In reply to the parliamentary committee, Raghuram Rajan said that the highest NPA is between the UPA government’s tenure 2006-2008. Let me tell you, recently, the Deputy Chairman of the Policy Commission, Rajiv Kumar, said Raghuram Rajan’s policies were responsible for the NPA in banks.